Islamic Republic’s Trade at Standstill

Roozonline - Even as Iran’s president Mahmoud Ahmadinejad talks of “circumventing” international sanctions against the country and as officials had until recently boasted that the restrictions imposed by the West over Tehran’s nuclear program had no impact on the country’s economy, the minister of industries, mines and trade announced this week that trade by the Islamic republic had virtually come to a halt because of international restrictions.

Mehdi Ghazanfari, the minister of industries told reporters, “The central bank cannot meet all the foreign exchange needs of the country.” He continued, “Last year sanctions only targeted specialized banks and shipping while now trade too is halted. New trade policies must be implemented under these conditions. In the last six months of this year (the Iranian year begins on March 21st) of the 27 billion Dollars imports about 11 billion Dollars were funded through non-banking channels which indicates that the central bank cannot put its foreign exchange into circulation like it used to.”

Ghazanfari’s remarks contrast with what Ahmadinejad has been publicly saying about the Iranian economy and its condition. In Ahmadinejad’s words, “The Iranian nation has not only circumvented the sanctions but it even rides on them.” “The enemy may advance with a few steps but the Iranian nation has shown that it pushes them back to their own borders,” he continued.

But in addition to a growing number of remarks about the negative impact of international sanctions on Iran, statistics and even official figures now show the destructive impact of the international measures. Last week, the central bank of Iran published figures showing that liquidity in Ahmadinejad’s administration had grown by 7 percent compared to last year.

Others have come out with similar grim figures and situation. The head of Majlis’s planning and budget committee Gholam-Hossein Mesbahi Moghadam, for example, had told reporters that 60 to 70 percent of Iranian manufacturing plants had become idle and added that those that were still running operated at only 30 percent capacity levels. He attributed government’s lack of “discipline” to be the cause of the problems in the country which he named to be “an increase in liquidity and steep rises in unemployment rates.” He further explained that banking debts had risen because many manufacturing units that had borrowed money had opted not to repay them for understandable reasons. “They believe that if they paid up their debts and returned to the government to obtain new loans, the paper work to get new loans is now so cumbersome that they would not be approved, driving them to borrow money in the open market at higher rates than what the penalties imposed by banks for defaulting on their loans.”

Mesbahi Moghadam’s remarks about under-capacity production comes at a time when Ruhollah Beigi, a member of Majlis’s economy committee echoed the situation last week. He too said between 60 and 70 percent of factories in Iran were idle and added, “The remaining plants were on the verge of stopping work as well.”

Mohsen Rezai, the secretary of the State Expediency Council also spoke of “poverty, economic problems” and “international sanctions” challenging the government. “40 percent of the inflation in the country was because of the economic sanctions by the US and the European followed by mismanagement and opportunism of some middle-men and the country’s bureaucracy which constituted the remaining 60 percent.”

Mousa Alreza Servati, another Majlis member who has been critical of Ahmadinejad administration’s economic policies also recently said, “The government has printed so much unbacked-up paper money to meet budget deficit caused by its cash pay-outs program that according to Majlis’s budget report for 2011, 12 billion Toman had been spent unlawfully for the pay-out scheme.”

The latest figures published by Iran’s central bank show that the government’s debt to the bank in the current year show a rise of 324 percent compared to 2005. In 2005 the debt stood at 2.11 trillion Toman while in June of this year it stood at 47.5 trillion Toman. Prior to these figures, the governor of the bank had stated that the total loans of the bank stood at over 60 trillion Toman.

Ahmadinejad had mentioned the growing government debt to the banks last month. He had said, “Some have taken large loans and are not returning them. We have been following this for the last four years. 80 percent of the bank loans belong to less than 10 percent of economic actors. If 20 percent of the loans are repaid to the banks, all our problems will be solved.”

By Arash Bahmani